Farleigh Wada Witt Offers Guidance on Communicating Skip Payments
March 24, 2020
Editor’s Note: The following is a contributed piece from credit union law firm, Farleigh Wada Witt, on what credit unions need to know regarding skip payments.
The coronavirus has credit unions considering a wide variety of measures to relieve consumers of their financial stress. Many credit unions regularly offer members the chance to skip payments around the holidays, however, they’re currently fielding a flood of member requests for temporary loan payment relief due to COVID-19. For consumer loans, regulatory and documentation requirements for deferred or skip payments have always created some confusion — especially when a fee is charged — but the process is relatively simple.
Few, if any, loan agreements provide members with a contractual right to defer or skip payments. Instead, the creditor has discretion to permit (or not permit) deferred or skip payments. Credit unions do not need to be bogged down in a regulatory analysis of change in terms requirements. Skip payment requests can be treated as a simple, temporary waiver of one of the loan requirements (the requirement to make a payment each month). A waiver does not require any notice under Regulation Z, for either open-end or closed-end loans.
Credit unions can offer skip payments simply by notifying members that the skip payment is available, specifying any conditions or requirements (i.e. which loan types are ineligible, loan must be current at the time of skip, etc.). In addition, the member should be notified that interest will continue to accrue during the skip period and that skipping the payment will require the member to make additional payments to pay off the loan. If there is a fee, the member must be made aware of the fee. For vehicle loans, the credit union should also notify members that skipping a payment may affect GAP or other insurance coverage related to the loan and that they should check their policy to be sure.
All of this information can be included in a very short notice, whether the credit union chooses to notify members via statements or on their website. If the credit union has not notified a member of a skip payment program but is instead responding to the member’s request by telephone or email, the credit union can simply send a confirming letter.
Something as simple as this statement would suffice:
“Pursuant to your request, we will allow you to skip the April payment on your auto loan. Interest continues to accrue and skipping the payment will result in additional payments required to pay off the loan. Check your GAP policy or other credit protection agreements before you skip the payment to be sure you are aware of any impact on coverage.”
In any event, the credit union must retain some documentation that the member has requested or agreed to the payment change — a confirmation letter to the member, the member’s signature on a skip payment request form, or a record of the member’s “click” consent to an online offer. During this unprecedented time of major daily disruptions, it’s best to keep it simple.
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Posted in Public Awareness.